No 'Santa Claus rally' expected for Korean stocks this year

Finance

Published: 05 Dec. 2023, 16:07 Updated: 05 Dec. 2023, 18:08

No 'Santa Claus rally' expected for Korean stocks this year

Runners dressed as Santa Claus take part in the annual 5-kilometer Santa Dash in Liverpool, Britain, on December 3, 2023. [REUTERS/YONHAP]

Expectations for the Santa Claus rally is growing in the United States, largely led by the Big Tech firms, but ambience in Korea is weak.

Santa Claus rally refers to the bump that the stock market tends to see from late December through early January as institutional investors settle their books before going on vacation for the holidays.

Of the 30 times that the S&P 500 index has jumped more than 5 percent over the past 50 years, all but four occurred between Nov. 15 and the year-end, according to analysis from HI Investment & Securities.

“The S&P 500 index rose 17.3 percent from the beginning of the year through mid-November,” said Park Sang-hyun, an economist at HI Investment & Securities. “If the preceding cases prove to be true, [the index] could rise additionally throughout the year.”

The market rally is expected to be led by the so-called Magnificent Seven (M7), which refers to Apple, Amazon, Alphabet, Nvidia, Meta, Microsoft and Tesla.

“Considering that the M7 rally continued this year amid high interest rates, there could be an additional rally due to disinflation,” Park added.

The situation in Korea is different, as the Santa Claus rally isn’t commonly observed in the market.

From 1987 through 2022, there have only been 20 instances where the Kopsi rose in December. The index slid 9.55 percent last December.

The secondary Kosdaq rose in December 13 times between the years of 1996 and 2022 and decelerated 14 times.

The year-end spirit often was not reflected in the market, as the ex-dividend dates for most stocks fall in December. Investors tend to lose interest in dividend stocks once the dividend record date passes.

“Some 80 percent of stocks listed on the S&P 500 opted for a quarterly dividend payment, but most companies in Korea provide dividends [based on their holdings] in December,” said a spokesperson for the financial circle who spoke on the condition of anonymity. “Stock prices can become largely volatile before and after their ex-dividend dates in December.”

But the financial authorities’ pressure on Korean companies to disclose dividend amounts before those dividends' ex-dates could also reduce market volatility in the year-end period.

“Unlike in the United States, the market in Korea does not show clear signs [of a rally] at the year-end or the beginning of the year,” said Kim Jae-eun, a researcher at NH Investment & Securities. “The fact that 49 of the Kospi 200 firms may push the dividend record date to early next year instead of the end of the year could reduce market volatility.”

Sales of stocks by major shareholders in December, made in order to avoid paying capital gains tax, have also been attributed to December's weak market sentiment.

“If the economy soft lands, rate cut may not happen as much as was expected,” said Kim Yong-gu, a researcher at Samsung Securities. “The chance of a Santa Claus rally in December will be very limited, considering that it rose too rapidly and largely in December.”

BY KANG KWANG-WOO [jin.minji@joongang.co.kr]